by Karl-Friedrich Israel
Mises.org
Robert E. Lucas Jr. won the Nobel Memorial Prize in Economic Sciences in 1995 for one of the most celebrated contributions in modern macroeconomics: the Lucas Critique. His article on econometric policy evaluation, originally published in 1976, according to many leading economists sparked a genuine methodological revolution in macroeconomic analysis. He emphasized that the underlying coefficients of traditional econometric models are not constant. Hence, these models were inadequate for counterfactual policy evaluation. In other words, these models were inadequate for scientific predictions of the effects of political interventions into the economy, and thus incapable of prognostic comparison of alternative political interventions.